TCW Fund Manager Jaffee Bullish on Dividend Stocks

Dividend stocks have been on a roll lately, and Diane Jaffee, manager of TCW’s $5.6 billion Dividend Focused fund, thinks the party will continue.

Dividend yields for some blue-chip stocks easily exceed those of Treasury bonds, she notes.

“We look for increasing cash flow, leading to increasing operating margins, leading to increasing earnings, and then being paid out in terms of dividend yield,” Jaffee tells CNBC. And there are plenty of stocks fitting that bill.

The payout ratio among stocks in the Standard & Poor’s 500 Index totals only 30 percent, she says. “The long-term average is much higher,” giving companies plenty of room to raise their dividends.

Some naysayers argue that an expiration of the Bush-era tax cuts would hurt dividend stocks, as dividend taxes would rise from the current 15 percent rate.

But Jaffee points out that dividend stocks performed well during the Reagan administration, when dividend taxes were much higher.

Her favorite stocks include Pfizer (ticker: PFE), with a dividend yield of 3.9 percent, Chevron (CVX) with a yield of 3.2 percent, JPMorgan Chase (JPM) with a yield of 2.8 percent, and Home Depot (HD) with a yield of 2.3 percent.

Other experts agree with Jaffee’s philosophy of stock picking.

“The key to dividend investing is to focus on companies that will be able to grow that dividend payout over time,” George Fraise, a portfolio manager for Sustainable Growth Advisers, tells Bloomberg.